This article is from WeChat public account: Silicon Stars (ID: guixingren123) , author: Juny, editor: VickyXiao, head image from: Visual China
The emergence of an explosive news in the past few days has made the capital circle tense.
The fifth largest consortium in the world, the second largest bank in Switzerland, and the investment bank Credit Suisse founded in 1856 has been exposed that it is very likely to declare bankruptcy soon.
Undoubtedly, the news instantly brought many back to the eve of the 2008 global financial crisis. At that time, Lehman Brothers Investment Bank, one of the four major investment banks in the United States, with a history of 158 years, declared bankruptcy, which immediately triggered a large-scale run on the global financial system. More than 20 countries around the world were involved, and many countries even today Haven’t recovered yet.
Clearly, Credit Suisse and Lehman Brothers have a lot in common this time around. For example, they are all large investment banks, all have a century-old history, and all occupy an important position in the global financial system. You must know that the assets under management of Lehman Brothers were more than 600 billion US dollars, while Credit Suisse exceeded one trillion. Therefore, once Credit Suisse declares bankruptcy, it will not only trigger a financial tsunami in Europe, but the crisis is also very likely to sweep the world again, even more violently.
Right now, all eyes are on Credit Suisse’s bells and whistles. Some are busy putting out the fire, some are panicking, and some have already started to plan countermeasures. A super storm seems to be brewing.
Centennial Credit Suisse is heading for the “darkest moment”
On October 1, David Taylor, a well-known Australian financial reporter, tweeted that “according to reliable information, a large investment bank is on the verge of bankruptcy.” Everyone speculated that the bank was Credit Suisse. And such speculation is not groundless, let us look at a few data.
Since entering 2022, Credit Suisse’s share price has fallen by nearly 60%, which will set the largest annual decline in its history. Its share price has dropped from nearly $15 at the beginning of last year to below $4 this week, constantly refreshing the lowest point since Credit Suisse went public.
Credit Suisse’s stock price chart since the 1990s, the picture is taken from bloomberg
In addition to depressed share prices, Credit Suisse’s five-year credit default swaps (CDS) have been on the rise and have recently reached their highest level since the 2008 financial crisis. The role of CDS is similar to an insurance contract. If the company is insolvent, investors will be compensated. In short, the higher the basis point of CDS, the greater the risk of the company being unable to repay its debts.
At present, Credit Suisse’s CDS has climbed from 57 basis points at the beginning of the year to more than 320 basis points. Especially under the fermentation of public opinion last weekend, the five-year CDS of Credit Suisse soared by more than 100 basis points in one day at the opening of Monday, reaching 375 basis points at one point. The similar five-year Morgan Stanley CDS is currently only about 70 basis points, and UBS is about 110 basis points.
In addition, as investors rushed to buy default protection in the short term, Credit Suisse’s one-year CDS rose even more aggressively, rushing from more than 100 basis points to more than 500 basis points on Monday this week, and there were 1-year and 5-year CDS. Inversion of the tenor curve. Judging from the current level of CDS trading at Credit Suisse, it has even surpassed its performance during the 2008 financial crisis. These all show that Credit Suisse’s investors are in extreme panic.
As of noon on October 7, U.S. time, Credit Suisse’s five-year credit default swap trend
In terms of operation, the signal from Credit Suisse is not optimistic either. On the 22nd of last month, Credit Suisse told Reuters that it planned to cut 5,000 jobs, accounting for about 10% of the total number of employees. At the same time, it also said that it will reorganize the investment bank on a large scale, dividing the investment banking sector into three, and is currently approaching investors for a new round of capital injection.
According to the latest statistics from data analysis firm S3 Partners, more and more people have joined the ranks of shorting Credit Suisse in the past week, and its net short position has increased by 25.4 million shares, an increase of 51%.
Every indication seems to be that, whether or not Credit Suisse will actually declare bankruptcy, it is indeed in the midst of a huge crisis.
Consecutive encounters with “natural disasters” and “man-made disasters”: two years of huge losses of tens of billions of dollars, deep in the whirlpool of scandals
So, why did Credit Suisse suddenly fall off a cliff and even be considered to be on the verge of bankruptcy? Looking back at Credit Suisse’s “torn thunder” incidents in the past two years, you will find that there are actually traces to follow.
The first was the bankruptcy of British fintech firm Greensill in March last year, causing huge losses to Credit Suisse. Greensill is a start-up company engaged in supply chain finance, mainly providing loan services to some upstream suppliers in the supply chain. Greensill aimed at the common problem of delayed payment of receivables in the supply chain, securitized the prepayments paid by enterprises, packaged them into bonds and sold them to third-party financial institutions like Credit Suisse, and Credit Suisse then sold the bonds. Packaged as an investment product for sale to investors.
Before the epidemic, Greensill was developing smoothly and was a star company in the UK startup scene. Not only has it received more than 2 billion investment from top institutions such as SoftBank (yes, there is also SoftBank…) and the General Atlantic Investment Group, but also invited former British Prime Minister Cameron to serve as a consultant, and its market value once approached 7 billion US dollars. Under the endorsement of SoftBank, Credit Suisse also invested $10 billion in bonds issued by Greensill.
Originally, Greensill’s customers were all large blue-chip companies, and under normal circumstances the risk was not large. But what I didn’t expect was that the sudden arrival of the new crown epidemic had a strong impact on the global supply chain system, and many companies were unable to deliver payments on time. Therefore, a chain reaction quickly occurred that led to the bankruptcy of Greensill, and most of Credit Suisse’s money could only be Then it went to waste.
Unfortunately, when Credit Suisse was still struggling to clean up the Greensill mess, the hedge fund Archegos broke its position and gave Credit Suisse another blow. Many people may not remember Archegos, but they must remember that last year there was a story of a Korean named Bill Hwang, who looked like Xiao Yueyue, who lost tens of billions of dollars in US stocks plus leveraged buying in Chinese stocks . That’s right, the hedge fund in charge of Bill Hwang is Archegos, and one of the “financial masters” behind Archegos is Credit Suisse .
At that time, Credit Suisse signed a gambling agreement with Bill Hwang, which increased the leverage to 5 times, but did not expect a sudden and collective collapse of Chinese stocks, causing Archegos to liquidate its positions instantly, and its risk exposure once reached 80 billion US dollars. Japan’s Nomura, Credit Suisse, Goldman Sachs, Deutsche Bank and other global brokerages and banks are involved. It is said that Credit Suisse’s loss is second only to Japan’s Nomura, with a blood loss of about 6 billion US dollars.
In addition to the loss of assets, Credit Suisse’s reputation and credibility have also taken a serious hit this year. In February of this year, more than 18,000 leaked account information of Credit Suisse showed that it was suspected of laundering money and managing assets for people involved in drug trafficking, corruption and other serious criminal activities, and was prosecuted by prosecutors.
At the end of June this year, Switzerland’s highest criminal court ruled on this criminal case, finding that Credit Suisse failed to adequately monitor bank accounts to ensure compliance with anti-money laundering regulations, and convicted Credit Suisse of helping drug dealers launder money, making Credit Suisse the first Swiss bank account in history. A major bank found guilty in criminal cases.
The incident not only made Credit Suisse under pressure from public opinion, but also forced it to pay high costs to restructure the bank and adjust the structure. In addition to these black swan events, this year coincides with the increase in interest rates by central banks of various countries and the entry of the capital market into a cold winter, which has made Credit Suisse, which is already not rich, even worse, and has gradually moved towards a crisis.
Credit Suisse is busy reassuring people, will the financial crisis really come?
In the face of the current market rumors and panic among investors, Credit Suisse had to come forward to appease everyone. And took a series of measures to prove themselves to the market.
According to a report by the Financial Times, Credit Suisse executives have assured major clients and investors of their liquidity and capital status, denying rumors of insufficient liquidity, saying that “the group has strong capital, sound finances, sufficient liquidity, and is in line with the industry. They are in an advantageous position compared to their peers .”
On Friday, Credit Suisse CEO Ulrich Koerner reassured employees in a memo that while the company is at a critical juncture, it still has a capital buffer of nearly $100 billion. Its highest-quality Common Equity Tier 1 capital ratio (CET1) is expected to remain at 13%-14% for the remainder of the year. It also appeals to everyone not to confuse its share price performance with capital strength and liquidity.
On Wednesday, news emerged that Credit Suisse would consider letting an outside investor take part in a spin-off of the investment banking business and create a new company akin to a boutique investment bank. Today Credit Suisse also announced a $3 billion repurchase of its own bonds to show that it has money and no liquidity dries up at all.
This series of consecutive moves has allowed Credit Suisse to recover slightly from Monday’s lows, and cds have also declined. Although it has played a certain role in reassuring, it has not completely dispelled the market’s concerns. After all, recalling 2008, Lehman Brothers also claimed to have “strong capital strength” on September 8, and filed for bankruptcy protection on September 15. And whether Credit Suisse will repeat the Lehman drama again, it is hard to say.
Image taken from the Twitter account of Wall Street Journal reporter Spencer Jakab
However, many also believe that even if Credit Suisse declares bankruptcy, the market is not overly panicked and that a systemic financial crisis will not happen easily. Since the financial crisis in 2008, governments around the world have adopted more complete and strict regulatory measures. The traditional economic system is more liquid and capitalized than before, often exceeding the minimum regulatory requirements. The regulatory authorities in various countries have better management measures, higher awareness of crises, and greatly improved risk resistance capabilities.
Image via Sean Tuffy’s Twitter account
But no one knows for sure when the next crisis will come. In today’s highly globalized capital world, once a huge financial institution such as Credit Suisse goes bankrupt, it is obvious that many institutions and even countries will inevitably be involved.
At present, from the broken, true and false information, everyone still does not know how big the hole behind Credit Suisse is and how difficult it is to solve. Credit Suisse said it will disclose its results on October 27, and will also announce the group’s latest strategic plan. From now until the end of the month, before Credit Suisse reports results, everyone is still nervously watching.
This article is from WeChat public account: Silicon Stars (ID: guixingren123) , author: Juny
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